The future of money in 30 minutes
A money revolution is going on
The increasing adoption of cryptodollars—digital dollar tokens that can be passed hand-to-hand like cash—is a sign of the revolution that’s going on in money, says Nic Carter, our guest on the latest New Money Review podcast.
Carter, a former cryptoasset analyst at fund giant Fidelity, is a venture capitalist and cofounder of blockchain data firm Coinmetrics.
Cryptodollars—Carter’s preferred name for stablecoins that are settled on public blockchains—are a highly disruptive innovation, says Carter, calling them “the first killer app of crypto”.
By contrast with volatile cryptocurrencies like bitcoin and ethereum, stablecoins offer to fulfil one of the key attributes of money—by working as a medium of exchange.
They promise to help their users transfer value quickly and safely, even from one end of the world to another, without going through the banking system.
“This is the first time the crypto industry has manufactured something of immediate relevance to the outside world,” Carter says.
“By tying the settlement assurances of the blockchain with a token that represents an IOU for funds held in a bank account, you get something quite powerful. I think we’re just at the beginning of seeing the applications.”
The invention of cryptodollars could even have far-reaching geopolitical implications, says Carter, who points out that blockchain-based dollars could help address the stubbornly high cost of money transfers borne by residents of the global South.
Listen to the podcast to hear Carter and New Money Review editor Paul Amery discuss:
* Why demand for stablecoins is rising
* Why cryptodollars are today's eurodollars
* How stablecoin usage is evolving
* The growth of unregulated stablecoins
* The changing structure of the financial system
* The impact on geopolitics
Digital currency—a central banker’s view
This year’s coronavirus pandemic has accelerated plans for the introduction of central bank digital currencies (https://newmoneyreview.com/index.php/2020/03/25/coronacrisis-accelerates-state-digital-currency-plans/) (CBDC)—a mobile-ready replacement for our state-issued banknotes and coins.
But many of the most important design aspects of CBDC are still unanswered (https://newmoneyreview.com/index.php/2020/10/13/keeping-money-public/).
In the latest episode of the New Money Review podcast, Aleksi Grym, head of digitalisation at the Bank of Finland (https://www.bofbulletin.fi/en/author/aleksi-grym/), shares a central banker’s view on CBDC, the accelerating shift to online commerce and the growing role of big tech firms in money.
Listen to the 30-minute podcast to hear more about:
* The digitalisation of payments
* Why demand for cash is increasing at the same time
* Finland’s past experiment with state digital money
* Where to strike the public/private balance in the provision of payment services
* Why the costs of cross-border payments remain stubbornly high
* How big tech firms’ role in payments is certain to increase further
* Why bitcoin is already challenging regulated payment networks
* Should there be transaction privacy in digital money?
* Could state payment services compete by offering better data protection?
You can subscribe to the New Money Review podcast on Apple (https://podcasts.apple.com/us/podcast/new-money-review-podcast/id1469378217), Spotify (https://podcasters.spotify.com/podcast/1yNM9hPYVxmuycopUD0cuH/overview), Stitcher (https://www.stitcher.com/podcast/paul-amery/new-money-review-podcast) and Blubrry (https://blubrry.com/newmoneyreview/)
Why Libra was bound to fail
Facebook’s ‘Libra’ digital currency project combined incompetence and arrogance and was bound to fail, says David Gerard, our guest on the latest New Money Review podcast.
Gerard, a technology expert and journalist, is the author of a new book, called ‘Libra Shrugged (https://davidgerard.co.uk/blockchain/about/)’, on what he sees as Facebook’s attempts to take over the world’s money.
In June last year, Facebook CEO Mark Zuckerberg announced his firm’s ambitions to provide the first global medium of exchange (https://newmoneyreview.com/index.php/2019/06/18/zuckerberg-launches-his-global-currency-project/), for use across the firm’s social media channels, which include Messenger, WhatsApp and Instagram and reach over 2bn global users.
According to Gerard, Facebook’s bid to launch a private currency was motivated by its desire to collect even more of our personal data.
And if regulators hadn’t prevented the launch of Libra, says Gerard, the US technology firm would have obtained an almost impregnable competitive advantage, he argues.
“If you think Facebook is hard to regulate now — just think how hard Facebook would be to regulate if it controlled not just the money, but your access to financial services outside Facebook,” he writes in his new book.
According to Gerard, Facebook seriously misjudged the complexity of the regulations governing the world’s financial system. The firm apparently thought it could just launch a new global digital currency on the basis of a good idea, he says during the podcast.
While the tech giant is likely to continue in its payments push, says Gerard, it will have to do so with vastly reduced ambitions. Facebook has already been forced to abandon its plans for a single global currency unit (https://newmoneyreview.com/index.php/2020/04/16/facebooks-libra-goes-for-single-currency-stablecoins/).
In the podcast, Gerard also explains his long-standing dislike of cryptocurrency, calling bitcoin an ‘apocalyptic death cult’.
While the cryptography supporting bitcoin is sound, he says, the 12-year-old digital currency—and its many spin-offs—have attracted serial scammers, who keep preying on gullible members of the public.
During the interview, Gerard goes on to express scepticism about the current race to introduce central bank digital currencies (CBDCs) (https://newmoneyreview.com/index.php/2020/08/27/will-digital-cash-be-private/).
As payments become increasingly digital (https://newmoneyreview.com/index.php/2020/11/04/digitalisation-of-payments-accelerates/), CBDCs could replace national banknotes and coins.
But most of these new digital moneys are a solution in search of a problem, argues Gerard, and are unlikely to take off.
Flawed ID systems risk perpetual crisis
If we don’t fix our flawed digital identity infrastructure, says Bianca Lopes, our guest on the latest New Money Review podcast, we can expect repeat after repeat of crises like Covid-19.
Digital ID is how we recognise people and things online. It’s how we know who we’re dealing with. ID systems also determine our money systems (https://newmoneyreview.com/index.php/2018/11/12/how-identity-systems-create-financial-power/).
To understand digital identity, we need to start by remembering that our biological make-up plays a big role in determining the way we assess and interact with the outside world.
“The human brain is naturally wired to want to identify things,” says Lopes, a mathematician and identity and data expert.
“It’s how we decide, ‘Hey, this is an enemy and I need to act’, or ‘This is an opportunity’,” says Lopes.
According to Lopes, we can draw an important lesson from coronavirus.
“We’ve realised that identity is so foundational to our society,” she says.
“The pandemic has allowed us to see that cracks in the identity infrastructure exist,” she goes on.
“It’s a systemic problem. If we don’t address it at the core, we will see the consequences coming out in times of crisis more than ever.”
A cryptoasset snapshot
The global cryptoasset market is growing fast, but it’s one of the most opaque areas of finance.
Now the world’s academic institutions are gearing up to map the sector.
The Cambridge Centre for Alternative Finance (CCAF), part of the university’s Judge Business School, has established itself as one of the main cryptoasset research hubs.
In the latest New Money Review podcast, Paul Amery, editor of New Money Review, interviews Apolline Blandin, the leader of CCAF’s crypto research team.
During the podcast, Apolline discusses the CCAF’s third global cryptoasset benchmarking study, which has just been released.
It’s a snapshot of the global cryptoasset industry, based on responses from 280 companies in 59 countries.
The study focuses on four main market segments: mining, exchanges, payments and custody.
Cambridge’s annual survey has global reach. It was sent out to respondents in eight languages: English, Spanish, Portuguese, Chinese, Japanese, Russian, Arabic and Korean.
The money wires
When looking at financial markets, we should pay more attention to the physical stuff—the cables, boxes, chips and code—without which those markets wouldn’t exist.
That’s because the money infrastructure has a huge impact on the way society and politics function (https://newmoneyreview.com/index.php/2020/08/04/tiktok-shows-the-message-is-the-money/).
In the words of John Handel, our interviewee on the latest New Money Review podcast, “technical details are never just technical details”.
Handel, a financial historian, works at the University of California in Berkeley.
And as cash disappears (https://newmoneyreview.com/index.php/2020/06/05/covid-wipes-out-cash/), payments become fully digital (https://newmoneyreview.com/index.php/2020/04/22/payments-are-about-more-than-payments/) and tech firms make their moves into money (https://newmoneyreview.com/index.php/2019/03/22/zuckerbergs-boldest-move/), the question of the functioning and oversight of the money system seems more topical than ever.
Handel’s specialist area of research is the physical infrastructure of nineteenth century financial markets—the actual wires, telegraph poles, roofs and buildings involved in relaying information—and its impact on financial power.